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Stability Index for Banks in Puerto Rico Fourth Quarter of 2020

Leslie Adames, Director of Economic Analysis and Policy


The index value for the 4Q20 does not reflect deterioration in the banking industry’s financial stability. After falling from 0.64 in 4Q19 to 0.54 in 1Q20, the index improved, settling at 0.58 in 4Q20.


The index recent performance reflects the continued strengthening of the banking industry’s liquidity. The strong growth in total deposits (i.e., influenced by the flow of funds from stimulus funds coming from the federal and local government) has been instrumental in this process. Total deposits increased 25% year-on-year to $73.2 billion in 4Q20, while loan balances rose 3.7% year-on-year to $39.9 billion, resulting in a strengthening of the Loan-to-Deposit ratio from 65.88% in 4Q19 to 54.58% in 4Q20.


Although the equity capital to total asset ratio has fallen sequentially since the 2Q19, the regulatory capital ratios remain above the minimum thresholds needed to remain well-capitalized. The industry’s average common equity tier 1 was 15.81% and the leverage ratio 8.61% (i.e., metrics well above the 6.5% and 5.0% threshold required by the Federal Deposit Insurance Corporation) as of 4Q20 suggesting that local banks have sufficient capital to absorb any potential losses and remain as a going concern.


The Financial Stability Index for Banks in Puerto Rico measures the financial health of the industry utilizing four measures as indicators: liquidity (total loans / deposits or LtD), solvency (capital to total assets or E/A), asset quality (nonperforming loans or NPL / Total Loans) and profitability (return on assets or ROA). The index fluctuates between [0,1], with values approaching zero (0) indicating financial fragility and values close to one (1) strength.


March 2021


Labor market

The slow and gradual adjustment in the labor market towards pre-pandemic levels continues. The figure for salaried employment as of February 2021 points to a 67% recovery of the 120,000 salaried jobs lost in April due to the shutdown of the economy implemented by the government in its efforts to contain the spread of COVID-19 among the population. The monthly evolution in salaried employment points to a net increase of 500 jobs for a total of 847,900 jobs in February, although the net balance was negative (-35,600 jobs) when compared to the total of 883,500 salaried jobs reported by the Department of Labor for February 2020. Meanwhile, the unemployment rate has remained stable during the last four months, standing at 9.2% in February, while the number of initial claims for unemployment stabilized at pre-pandemic levels, totaling 1,370 claims for the week ending February 27, 2021.


Commercial sector

Activity in the commercial sector contracted 2.4% annually with sales totaling $29.9 billion in 2020. If analyzed by type of shop, a growth in sales stands out for hardware and home improvement stores, grocery stores, pharmacies, sports stores, musical instruments stores, and fuel distributors. The category of sales by size of shop reflects that SMEs and large stores continued under pressure with annual drops in their sales volumes of 9% and 4.5% respectively in 2020. On the other hand, large chains (local and foreign) experienced a moderate growth of 2.6% per year in sales for this period.



Finally, there is an upward trend in the sales of housing units (new and used). The cumulative number of homes sold for the first two months of 2021 amounted to 2,066, reflecting an additional 379 units compared to the same period in 2020. Sales have been driven by solid annual growth in the new (32%) and used (22%) home segments.